The Department for Promotion of Industry and Internal Trade (DPIIT) on Monday notified changes in the foreign direct investment (FDI) policy to allow foreign companies with Chinese shareholding up to 10 per cent to invest in India through the automatic route, subject to sectoral caps and conditions, PTI reported.However, this exemption will not apply to entities incorporated in China, Hong Kong or other countries sharing land borders with India. Earlier, foreign companies with even a single shareholding linked to such countries had to obtain mandatory government approval for investment in various sectors.“The term ‘beneficial owner’ of an investment in India shall mean the beneficial owner of an investor entity incorporated or registered in a country other than a country sharing a land border with India,” a DPIIT notification said.This term shall have the same meaning as defined under section 2(1)(FA) of the Prevention of Money Laundering Act (PMLA), 2002. Under PMLA rules, controlling ownership interest means holding more than 10 percent of the shares, capital or profits in a company.The amended rules also mandate that investments by entities having direct or indirect ownership links with firms or citizens of land-border countries – and do not require prior approval – will have to comply with additional reporting requirements under the standard operating procedure prescribed by the DPIIT.The decision to ease the norms was approved by the Union Cabinet last week. The government had earlier tightened the FDI policy through Press Note 3 (2020) on April 17, 2020, to prevent opportunistic takeovers of Indian companies during the COVID-19 pandemic.Under that framework, investments from entities in countries sharing land borders with India, or where the beneficial owner was located in such countries, required prior government approval. This was seen as affecting investment flows, particularly from global private equity and venture capital funds with minority Chinese or Hong Kong shareholdings.DPIIT has also indicated that FDI proposals from these countries in the specified sectors will be considered under the expedited approval mechanism with a timeline of 60 days.Countries that share land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar and Afghanistan.China currently ranks 23rd in FDI equity inflows into India, with a 0.32 per cent share or US$2.51 billion between April 2000 and December 2025.
